Resource Generations‘ developments at its Boikarabelo coal mine have been delayed by up to six months due to the liquidation of its earthworks contractor.

The main earthworks contractor, Protech Kuthele, was placed initially into business rescue proceedings and then into liquidation in early July 2014. Protech Kuthele removed all staff from the mine site and terminated all activities, including those of its sub-contractor which was constructing three bridges under and over the rail line.

“This unforeseen development is expected to delay completion of the project by three to six months, with first coal production now estimated for the first half of 2016,” Resource Generation said in a statement.

“Recommencing earthworks for the rail link, roads and incomplete terraces require detailed surveys to establish bill of quantities for retendering. Whilst Resource Generation does not expect any difficulty in appointing an alternative earthworks contractor for a similar cost, commercial prudence requires a diligent process to be undertaken.”

Boikarabelo mine construction

Nevertheless, construction of Boikarabelo’s infrastructure continued steadily during the quarter, including a construction camp for up to 1,320 persons, 40km rail link earthworks and bridge construction, 36.8 km of roads, permanent water supply infrastructure, construction power infrastructure, and a construction office complex.

A site inspection was also conducted by the Chief Executive Officer of Transnet Freight Rail (TFR) and key members of his senior management team, accompanied by the Department of Mineral Resources Limpopo Regional Manager and senior officers.

Good progress was made during the quarter on the road underpasses for the water pipeline from the Marapong effluent treatment facility to Boikarabelo, which is an integral part of the mine’s social and labour plan.

“All regulatory consents have been received, all necessary land has been acquired and rail haulage and port access contracts sufficient for the mine’s stage 1 production have been signed. Addenda to both the rail haulage contract and the port contract were signed during the quarter to defer take or pay commitments until the first half of 2016,” the company said.

Funding Status

Negotiations on term sheets for project finance to complete the mine have been protracted and whilst these continue, alternative funding solutions are also being negotiated. Progress was made during the quarter with three parties for the funding of mobile equipment totalling approximately $100 million.

Binding term sheets are in place with Noble Group for a US$65 million loan for construction of infrastructure and a US$55.3 million loan for construction of the rail link. US$20 million has been drawn down from the rail link loan.

Offtake contracts

Three long-term export offtake contracts have been entered into with CESC, Valu Investments and Noble Group. These contracts underwrite most of the forecast revenue from Boikarabelo’s stage 1 production and a substantial portion of stage 2 production.

A domestic offtake contract for 3.0 million tonnes per annum of middlings coal has been entered into with Noble Group for the first eight years of production.

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